Welcome protection scheme

However, it highlighted two areas in which the Island might, at the time of publication, have been found wanting. One concerned a financial ombudsman, a matter now in hand. The other concerned a protection scheme for investors, which, after a lengthy States debate at the end of last week, we shall now have.

Traditionally, it was felt that our financial services industry required no depositor protection safety net because our financial institutions were so sound in strength and depth. Just how dangerous that assumption might have proved was demonstrated in the Isle of Man and Guernsey, where, all too recently, banks failed and investors were left wondering where their hard-earned cash had gone.

Those collapses were exceptional, but the present global financial crisis has taught anyone willing to learn a lesson that the unthinkable can and does occur. Economic Development Minister Alan Maclean might still be confident that the new protection scheme will ever be needed, but many people inside and outside the Island will be more than content to see it in place.

It can be argued that, as in so many other areas of life, investors should bear in mind the axiom ‘let the buyer beware’ while simultaneously remembering that the world is an uncertain and unpredictable place. If, on the other hand, measures that remove at least some of the riskiness from investment – especially with the small investor in mind – can be introduced, so much the better.

With a limit on an individual’s protection of £50,000 and a cap on the scheme of £100 million – £35 million guaranteed by the States and the rest by financial institutions – there will still be scope for substantial losses, but it would clearly have been unrealistic to have opted for open-ended compensation. It can, moreover, be argued that the £50,000 limit is calculated to target those who are likely to be hardest hit by a financial collapse – those with a moderate amount of money invested with a single institution.

Meanwhile, although many of the investment decisions involving Jersey are of a corporate nature and do not directly involve private individuals placing money here, the introduction of the new scheme will undoubtedly enhance our image. Such schemes are increasingly seen as essential features of any modern, responsible, well-regulated financial centre.